Nvidia Announces Stronger 1Q 2014 Earnings

Nvidia [NASDAQ:NVDA] today announced stronger than expected earnings for the first fiscal quarter of 2014 (1Q 2014), which is the first fiscal quarter of 2013 or 1Q 2013. In this quarter, Nvidia reported earnings of $77.9 million on $954.7 million in revenue. This represents a growth of 29% year over year and down 55.2% over the fourth calendar quarter of 2013 and Nvidia?s fiscal 2013, traditionally their strongest quarter. Their revenue was also up 3.2% year over year when compared to the same quarter a year ago, and down 13.7% over the previous quarter. Nvidia also reported record gross margins at 54.3%, up 1.4% over the previous quarter and up 4.2% over the same period a year ago. This improvement reflects their mix of higher margin products, and they expect margins to remain the same for 2Q 2014 (calendar 2Q 2013).

Looking at Nvidia?s business units, the consumer PC market declined 15%, which means their out-performance stems from success of growth and targeted investment strategies. Gaming GPUs were up 24% year over year. Revenue for Tegra was down 50% over previous quarter, 22% yoy.

OpEx is expected to be $448 in 2Q up from $436 in the current quarter as well as up from $402 in the previous quarter, representing an increase in OpEx of more than 10% over two quarters. Nvidia?s increase in OpEx is due to the fact that they will be hiring more staff and taping out more new products that they expect to bring in the following quarters. Nvidia says that they are very focused on maintaining their OpEx and continuing to grow their TAM.

For the fiscal 2Q 2014, calendar 2Q 2013, Nvidia is expecting revenue to be up 2% QoQ and GPU to be greater than that and Tegra to be less than that. With Nvidia currently doing their best in their traditional businesses and does not look to be stopping any time soon. While it is clear that Tegra 4 has not been a huge success in terms of design wins, Nvidia is still doing quite well financially. While they do not have much for the Tegra business in 2013, they likely will have a better product in Tegra 5 for OEMs to adopt in their designs. Their consumer gaming GPU business has been doing fantastically with the Kepler architecture and the popularity of GPUs like the GeForce Titan, which we reviewed and saw as being one of the best GPUs ever. Nvidia also expects to gain more laptop market share with the release of Haswell, which remains to be seen since AMD is still a competitor in this market.

During the earnings call, Jen Hsun Huang was asked about the decline in sales of high-end Android phones and tablets and an increase of low-cost ones. However, Jen Hsun stated that Nvidia still has quite a few opportunities as a newcomer to the market and still has many opportunities for growth. While we’re not sure whether or not Nvidia will be successful with the Tegra 4 based SHIELD that we saw at CES.

This year, we don?t really expect to see much movement from Nvidia in terms of their traditional GPU businesses. We believe that they will continue on their current slow-growth trajectory even though their products will likely not introduce any products featuring any new architecture until next year.